NAFTA countries enter Round 5 with hardened stance

With the fifth round of NAFTA now underway in Mexico City, negotiators from Canada and Mexico are determined to avoid engaging with the United States on some of Washington's most extreme proposals, leaving the onus on the Trump administration to come back with reworked offers its North American counterparts are willing to consider.

They’re trying to avoid the war of words that erupted after the last round last month, when it seemed that a U.S. withdrawal was a question of when, not if.

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But the surprise announcement earlier this week that the countries’ top trade ministers would be skipping the round means the focus this time will be on lower-level technical aspects of the deal — and suggests that the political impasse after Round 4 has yet to be resolved.

At the same time, Canada and Mexico are trying to determine whether the United States is willing to compromise on its proposals on automobiles, seasonal produce and government procurement that both trading partners have deemed unacceptable.

“You’re going to see an active and very lively debate going on in Canada and also in Mexico about, 'Are these negotiating positions, or are these hard and fast U.S. proposals?'” said Eric Miller, president of the cross-border consulting firm Rideau Potomac Strategy Group, which focuses on trade issues. “The parties are essentially going to eyeball each other and see who blinks.”

President Donald Trump also continues to leave open the possibility that he will give notice of withdrawing from the pact. Originally believed to be a negotiation tactic, industry and business groups in all three countries have a growing sense of unease about whether he would follow through.

For now, no one is seriously talking about quitting. Officials have added two extra days of talks to the start of the round — Wednesday and Thursday — in an attempt to make sure all negotiating groups have a chance to meet before activities formally kick off on Friday.

Taking advantage of the extra days, negotiators are intent on making at least some progress in Mexico City even though they acknowledge broad differences that remain. The primary focus of the six days ending on Nov. 21 will be on the “modernization” aspect of the renegotiation — areas like digital trade, electronic commerce and streamlined customs procedures where all three countries feel there is a need for adjustment and a way forward. Officials are also near completion and could announce progress on chapters relating to telecommunications, anti-corruption and food safety standards, sources close to the talks say.

Some hope that progress in any capacity will placate the Trump administration and quiet calls for withdrawal.

“The strategy is to ‘hold the line’ on the absurd U.S. proposals while introducing new proposals to improve trade,” said Jorge Guajardo, a former Mexican ambassador who now works as a senior director at McLarty Associates in Washington. He cited customs, food safety and agriculture as three areas where the country would like to focus.

But on other areas — especially over the U.S. issues that both Ottawa and Mexico City have balked at accepting — the fifth round is unlikely to move the needle at all. The general sense is that Canadian and Mexican officials will hold off on offering counter-proposals and will avoid the most controversial topics — except perhaps to ask the U.S. for additional details on its demands.

“It’s about exchanging information and trying to feel out where the limits may be,” said Dan Ujczo, a trade and customs attorney who focuses on cross-border business issues between the U.S. and Canada.

Among the U.S. proposals drawing the most rebuke from Mexico is one that would give produce growers the power to file trade cases based on seasonal and regional data. Mexico has already dismissed the proposal as a non-starter. Rather than counter the U.S. idea with one of its own, Mexican officials are waiting for the U.S. to come back with a reworked offer that it finds more palatable.

“We’re in a position where we are not willing to accept any proposal at any cost,” Bosco de la Vega, president of Mexico’s main agricultural group Consejo Nacional Agropecuario, told POLITICO after the close of the last round. “If the U.S. comes back in the next round with an adjusted proposal, they can continue with their negotiations — if they’re willing to negotiate.”

Another issue dominating headlines and hallway conversations during talks is the U.S.-backed sunset provision, which would automatically terminate the deal after five years unless all parties agree to renew it. Critics argue that a sunset provision would bring an ever-present uncertainty to trade relations, hurting investment and cross-border commerce, as well as greatly increase the likelihood of termination.

In terms of the auto rules of origin issue, the U.S. has proposed sharply increasing the amount of North American-sourced content in automobiles from 62.5 percent to 85 percent for the product to qualify for reduced tariffs. It is also pushing for the addition of a domestic content requirement, which would mandate that at least 50 percent of the automobile be sourced from within the U.S.

On that front, some in Canada are exploring ideas of how to work with the United States to adapt its proposal into something more acceptable. One thought is to propose that intangible components of a car — like research and development and marketing costs — could be included to reach that 85 percent threshold. That may meet the U.S.’ desired number without angering or hurting North American automakers, Ujczo said.

The original version of the U.S. proposal on autos would be“a recipe for offshoring jobs” from all three North American countries, Colin Bird, minister-counsellor for trade and economic policy at the Canadian Embassy, said late last month. Mexico has voiced similar concerns.

Meanwhile, opposition to various language is coming from the domestic front as well. U.S. business and industry groups have been pleading with American officials to remove the threat of withdrawal once and for all. The U.S. Chamber of Commerce, for one, has taken a leading role in pushing back on what its leaders have called “highly dangerous” and “poison pill” proposals.

The domestic agricultural industry, largely centered in states that backed Trump in last year’s presidential election, has also launched a mobilization effort to stave off withdrawal, particularly after Commerce Secretary Wilbur Ross publicly disputed the belief that doing so would lead to a serious drop in ag exports.

The difference of opinion stretches all the way up into the administration itself, where there’s an apparent lack of agreement on the part of U.S. officials and career staff at USTR who are at odds with the Trump administration on certain policy areas. In at least one negotiating group in Round 4, for example, officials made a clear differentiation between USTR proposals and Trump administration proposals, one source said.

“It suggests that the U.S. doesn’t have a common position at the negotiating table,” the source said, calling it “sort of disturbing.” “It’s somehow not surprising, but still it underscores the difficulty that the U.S. is having in putting this forward.”

In public comments this week, Ross offered a forceful defense of even the more extreme proposals this week and offered no sign that the administration would be willing to back down. His comments Tuesday help set the stage for a fifth round of talks resembling a balancing act, with Canada and Mexico trying to stand their ground without setting off the unpredictable U.S. administration.

“As long as negotiators can show that some progress at least is happening,” one source close to the talks said, “I don’t think the U.S. will say, ‘OK, we’re withdrawing.’”